As we enter 2008 we see a small number of core issues bubbling to the top of mind for all executives who have responsibility for ensuring that there is an appropriately built, risk-controlled operational platform within their firm (and here’s a clue: that should be every executive in the firm).

The first of these issues is the relationship between IT and ‘the Business’: there are signs that, finally, people are “getting it” – if the different parts of the firm that usually work apart from each other don’t start pulling together, IT performance and value delivery will forever be sub-par. Inching closer to their business colleagues has been every technology executive’s personal nirvana since the first IBM PC showed up on a ‘business’ person’s desk; the key difference emerging now is that the executives who control the company’s purse strings have begun to recognise that IT is no longer simply a cost, to be endured – or, at best, tolerated – but a source of value and competitive advantage. As to why this should be happening now, we see that the rise of the hedge fund is a big contributory factor: here we have ‘business’ people who can program – often as well as the programmers in the IT group – and who know the value of IT because they truly understand what it can do.

One of the clearest indicators that this Business/IT partnership transformation is happening is our second core issue for 2008; the emergence of ‘enterprise architecture’ as a vital cornerstone of Business-IT strategy. We have begun to see a clear trend emerging: asset management firms taking advantage of established technology, paradigms and operating frameworks that other industries employ to improve efficiencies and become more flexible to business change. Asset managers are establishing formal architecture groups and are assessing organisational structures and workflows on a firm-wide basis (and, where applicable, globally). One of the common features of internal IT groups back in the early 2000s were the “programmer wars” that fixated upon the advantages and disadvantages of DotNet over J2EE and vice versa: now the focus is on understanding how to overcome the challenges of successfully implementing SOA and message-centric architecture paradigms.

The third core issue we see is a heightened interest in the competitive landscape: executives are asking many more questions about what their competition are doing. We don’t see this as just curiosity, rather when we hear the question, “How are other firms coping with changes in investment strategy” we know it is because the executive is confronting the reality that their existing operational platforms are not fit for future purpose. Partly as a result of the improving Business/IT relationship, and partly because of the rapidly growing complexity of the operating environment due to the increase in use of OTC derivatives, firms are examining their processes and systems and deciding that even if no one has every problem licked, someone, somewhere, has the same challenge as they do – and may be coping with it.

This interest in what the competition is up to brings us to the fourth, and last, core issue we have identified as being at the top of the executive agenda in 2008: the convergence of the ‘hedgies’ and the ‘trads’ – the fight for the big, fat middle ground of asset management. We are seeing hedge funds faced with the challenges of how to scale their platforms to cope with increased volumes (of assets, clients, strategies, transactions).  Hedge funds are also learning how to handle increasing levels of operational risk and regulatory demands, in order to provide more effective and reliable functionality to their managers and traders. At the same time, traditional, long-only managers are expanding their platforms to cope with a range of asset classes, instrument types and investment strategies that hitherto have been alien to them: they are having to create an operational platform, on the fly, when they lack the first-hand expertise and experience with which to do this.

So, everybody is facing up to a lot of change, a lot of uncertainty and a lot of competition. Firms are moving forward to face these core issues head on — some more aggressively than others. 2008 will be a pivotal year, setting the stage for efforts ahead.